Open Records Decision No. 426
March 18, 1985
Re: Whether computer programs, formulas or other methodologies used by an
appraisal district to determine the value of multi-family dwellings is available to the
public
Mr. Kenneth Wall
Attorney at Law
Olson & Olson
Capital Bank Plaza, Suite 3485
333 Clay Avenue
Houston, Texas 77002
Dear Mr. Wall:
The president of the Houston Apartment Association has asked the Harris County
Appraisal District to provide it with the following information:
1. Any and all policies, procedures, computer programs,
formulas or other methodologies used by the Harris County
Appraisal District to determine the value of multi-family dwellings
within the district. Such items are requested whether they be
written, on magnetic tape or disc, or in any other form.
2. Any and all data, studies, sales records or other material
used by the appraisal district to determine the value of multi-family
dwellings whether such material is used as comparable data on a
case-by-case basis for the development of any policy, procedure,
computer program, formula or other methodology to determine said
value. Such data shall be all that is in the records of the district
including, but not limited to, the following:
a. Sales prices of any comparables;
b. Terms of payment for any such sale price including interest
rate and timing on any deferred payments;
c. Date of any sales;
d. Other agreements (including but not limited to syndication
fees, guaranteed income, leasebacks and other payments or
fees).
As attorneys representing the Harris County Appraisal District, you assert that the
"computer programs, formulas or other methodologies used by the appraisal district to
determine the value of multi-family dwellings within the district" constitute "trade
secrets" of Cole-Layer-Trumble, the company with which the district contracted for data
processing services, and are therefore protected from required disclosure by section
3(a)(10) of the Open Records Act, article 6252-17a, V.T.C.S., which excepts
trade secrets and commercial or financial information obtained from
a person and privileged or confidential by statute or judicial
decision. . . .
We understand that the availability of the remainder of the material requested in this
instance is not at issue here and assume that the district has voluntarily released it.
Consequently, we deal only with the availability of the "computer programs, formulas or
other methodologies" used by the district.
Although a trade secret may consist of a compilation of information, Hyde
Corporation v. Huffines, 314 S.W.2d 763, 776 (Tex. 1958), "trade secret" ordinarily
refers to the particular manner in which the information is compiled and usually deals
with a pattern, formula, or device. See, e.g., Hallmark Personnel of Texas, Inc. v.
Franks, 562 S.W.2d 933 (Tex. Civ. App. - Houston [1st Dist.] 1978, no writ). For
example, the owner of the "trade secret" in the Hallmark Personnel case did not claim
that the data contained on an employment agency's applicants' cards was itself a trade
secret; rather, the trade secret owner would have to show that the actual details of how
the data was analyzed constituted a trade secret because these "actual details" would
make the information valuable to a competitor. Id. at 935. Customer lists which have
been kept carefully guarded are often protected, see Crouch v. Swing Machinery
Company, Inc., 468 S.W.2d 604, 605-07, (Tex. Civ. App. - San Antonio 1971, no writ),
but matters of general knowledge are not trade secrets and cannot be transformed into
trade secrets merely by collecting information in a certain way. Reading & Bates
Construction Company v. O'Donnell, 627 S.W.2d 239, 243 (Tex. App. - Corpus Christi
1982, writ ref'd n.r.e.). On the other hand, the fact that a "trade secret" may be
discovered by fair means will not deprive the trade secret's owner of protection from one
who obtains it by unfair means.
Prior Open Records Decisions establish that decisions as to whether information
constitutes a "trade secret" are to be made by relying on the following six criteria:
(1) the extent to which the information is known outside [the
owner's] business; (2) the extent to which it is known by employees
and others involved in [the owner's] business; (3) the extent of
measures taken by [the owner] to guard the secrecy of the
information; (4) the value of the information to [the owner] and to
[its] competitors; (5) the amount of effort or money expended by
[the owner] in developing the information; (6) the ease or difficulty
with which the information could be properly acquired or duplicated
by others.
Restatement of Torts §757, comment b (1939). See, e.g., Open Records Decision Nos.
306 (1982); 255 (1980). In this instance, Cole-Layer-Trumble [hereinafter CLT] asserts
that the computer programs meet the trade secrets criteria in the following ways:
1. The extent to which the information is known outside of
the Cole-Layer-Trumble Company and clients: To our knowledge,
none exists. No other commercial valuation system with near the
sophistication of the CLT system is available. The income and
expense modules are unique in the business.
2. The extent to which it is known by employees and clients
of CLT: There are currently only four employees, two located in
Houston and two in Dayton, Ohio, who have in-depth knowledge of
the system. Only one is qualified to make extensive changes.
Several other employees are capable of transferring the software but
are not capable of making changes in the methodology. A number
of clients (covered by non-disclosure agreements) are familiar with
the overall logic but not the intricate details.
3. The extent of measures taken by CLT to guard the secrecy
of the information: The commercial valuation system is not
available without a contract with CLT. The agreement not to
disclose software is a standard part of contracts signed by CLT.
Programs are labeled with copyright statements. The source code is
not accessible to persons without a password. The location of the
system is not general knowledge. Program changes are made only
by programmers with the permission of the project management.
4. The value of the software to CLT and CLT's competitors:
There is a widespread demand for a commercial appraisal system in
the mass appraisal business. The system allows the knowledge and
experience of very competent and experienced appraisers to be
applied by less experienced appraisers. There is no other
computerized commercial appraisal system like the CLT system
available. No other system is as detailed in the application of the
cost approach. No other system providing full income and expense
calculations has been developed. The system not only sells itself but
also sells entire appraisal projects based upon its inclusion in the
package. If competitors possessed the system, they would become
able to market both the commercial appraisal system and entire
appraisal projects utilizing the system. There is also a market for
the system among fee appraisers who must now use manual
appraisal methods for commercial properties.
5. The amount of effort or money CLT has expended in
developing the software: The current software includes over ten
years of effort in direct development costs. The experience of
appraising over 100,000 commercial properties has contributed
further enhancements. The direct effort involved three system
analysts with over five years experience each and two commercial
appraisers with over twenty years experience each. Numerous
senior-level appraisers have contributed testing time and suggestions
for improvement. Senior-level analysts with experience in the mass
appraisal business have contributed to the interface with the total
appraisal process. The effort has not only been large but also has
involved a number of people with unique skills and experience in
the mass appraisal business.
6. The ease or difficulty with which the software properly
could be acquired or duplicated by others: The software can be
purchased by clients willing to sign nondisclosure statements. It is
normally sold as part of a larger package including appraisal work.
The system is only sold, installed and tested on a client computer.
Minimal cost, which includes other elements necessary to build and
edit data files, is $250,000 to $300,000. Customized systems based
upon the modules are more expensive. An equivalent design would
require both appraisers and senior analysts with extensive mass
appraisal experience. These are not readily available. Assuming the
personnel was available, we estimate it would take at least $500,000
to duplicate the modules. Several years of effort actually using the
system in the field would be required to duplicate the finely-tuned
points of the existing modules. Tens of thousands of properties
would have to be appraised manually and compared with the
computer results.
The Harris County Appraisal District is in the best position to determine whether Cole-
Layer-Trumble's arguments satisfy applicable requirements for classifying the requested
documents as "trade secrets." As attorney for the district, you have endorsed the
company's arguments. Because this office cannot resolve such questions of fact, we
accept your endorsement. Based on these arguments, we conclude that the "trade secrets"
criteria are satisfied in this instance. We therefore conclude that the requested
information is protected from required disclosure under section 3(a)(10) of the Open
Records Act.
Very truly yours,
Jim Mattox
Attorney General of Texas
Tom Green
First Assistant Attorney General
David R. Richards
Executive Assistant Attorney General
Rick Gilpin
Chairman, Opinion Committee
Prepared by Jon Bible
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Rick Gilpin, Chairman
Jon Bible
Susan Garrison
Tony Guillory
Jim Moellinger
Jennifer Riggs
Nancy Sutton